The ending merchandise inventory was overstated. This error would cause:
A) net income to be understated.
B) revenue to be understated.
C) net income to be overstated.
D) Cost of Goods Sold to be overstated.

Question

Quizplus · Accepted Answer

When the ending merchandise inventory is overstated, it means that the cost of goods sold (COGS) is understated because the ending inventory is subtracted from goods available for sale to calculate COGS. As a result, net income is overstated because COGS is a deduction from revenue to calculate net income. Lower COGS means higher net income.

The Ending Merchandise Inventory Was Overstated